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Basic Question 1 of 3
Which of the following ratios evaluates the effectiveness with which a company uses its assets?
B. Yes : No
C. No : No
Receivables Turnover : Interest Coverage
A. Yes : Yes
B. Yes : No
C. No : No
User Contributed Comments 7
| User | Comment |
|---|---|
| mtcfa | Somewhat tricky. Rec turnover involves an asset, but does it really have anything to do with how a firm is USING its assets, like PPE? |
| gth763s | Receivable turnover measures internal liquidity. |
| thud | I agree with mtcfa. |
| RCapistrano | "Somewhat tricky. Rec turnover involves an asset, but does it really have anything to do with how a firm is USING its assets, like PPE?" I do agree with this statement. How I've had to think about this is the following: When deriving the CFO (cash flow from operations) using the indirect method, an increase in A/R(accounts receivable) is subtracted from Net Income. Uses of assets are always subtracted; therefore, this decrease is a form of "uses of assets." I hope this helps and that it's accurate. If I'm viewing this incorrectly, I would appreciate any input. Thanks. |
| reganbaha | It measures how quickly a firm gets the cash. cash is an asset. |
| johntan1979 | The last time I checked, receivables is an asset. Don't think too much or too hard. Don't make the CFA exam harder than it already is. |
| ascruggs92 | mtcfa, selling inventory is typically the main source of revenue generation. Considering that revenue generation is the main object of all companies, long term assets such as PP&E are investments made to create revenue generation, meaning inventory turnover has everything to do with use of assets |
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Learning Outcome Statements
calculate and interpret free cash flow to the firm, free cash flow to equity, and performance and coverage cash flow ratios
CFA® 2024 Level I Curriculum, Volume 2, Module 5.